BT sales balloon flies high after EE merger, pleads with Ofcom not to burst it

Shares in BT were buoyed earlier this week as investors breathed a collective sigh of relief, after it was widely reported that the former state monopoly had been let off the hook by the UK's communications watchdog over the future of Openreach.

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On Thursday morning, BT had another—at least temporary—reason to be cheerful when it reported that sales were up some 35 percent following its takeover of mobile operator EE, which alone brought in revenue of £1.2 billion for the telecoms giant.

It told the City that total first quarter revenue stood at nearly £5.8 billion for the three months ended June 30, compared with almost £4.3 billion for the same period a year ago. Pre-tax profit was up 16 percent to £802 million from £694 million during the company's Q1 in 2015.

BT boss Gavin Patterson trumpeted the results:

Our integration of EE is progressing well, alongside our business reorganisation that took effect on April 1. EE performed strongly, both financially and commercially, and our customers are seeing the initial benefits of our acquisition with BT Sport now available to EE pay monthly customers.

We remain focused on improving customer experience and 100 percent of EE pay monthly calls are now handled in UK and Ireland contact centres. We’ve reduced engineer missed appointments by more than a third since last quarter and Openreach is again ahead on all 60 minimum service levels set by Ofcom.

His final remark is undoubtedly a loaded one aimed at the regulator, which on Tuesday called on BT to operate Openreach as a separate firm but—again—stopped short of demanding a divorce from its infrastructure business, largely due to a big headache: BT's pension deficit.

Regulatory price changes meant Openreach sales were flat (£1.2 billion) during the firm's strong quarter, BT said. Nonetheless, it is moving forward with plans to make Openreach more independent from BT as it attempts to end pressure from Ofcom by offering a set of compromises that could yet fall flat.

BT doesn't agree, for example, that Openreach should operate as a newly incorporated subsidiary of the one-time state monopoly.

"Our proposals can form the basis for a fair, proportionate, and sustainable regulatory settlement and we believe they can also enable Ofcom to bring its Digital Communications Review to a speedier conclusion," Patterson said. "We will continue to engage with Ofcom over the coming months.”

BT's rivals, however, continue to push for more action from Ofcom.

Three said on Tuesday that it was disappointed with the watchdog's decision not to demand a structural separation of BT and Openreach.

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It said: “This is yet another example of UK regulators failing to stand up to BT after the CMA [competition and mergers authority] waved through its purchase of EE without any action following advice from Ofcom. BT/EE now controls almost half of the vital airwaves that are used to provide a mobile phone service."

"Ofcom’s proposals simply don’t go far enough, and we know many people up and down the country feel the same way. This is a once-in-a-decade opportunity for them to tell the regulator directly they don’t want a halfway house for another decade, they want truly radical change now,” said TalkTalk's boss Dido Harding.